How Did We Get Here?

I've been in Simi Valley real estate for twenty years. There have been lean years, especially in the early '90s, but there have also been excellent years. Real estate was reliably good until this year. I have to admit 2007 has been the roughest times I've ever experienced. I remember reading an editorial by Paul Krugman a while back, in which he said, "Americans make money from selling houses to each other through money borrowed from the Chinese." That is quite an observation.

My clientele has always been everyday folks who were looking to sell or buy a home. Sure, a home is an investment, but most didn't buy as investments, they bought a home to live in and raise their families. My clientele grew by referral. Family members telling family members. I know there have always been real estate investors, people who gambled in real estate hoping to catch the wave of buying low and selling high. Even TV shows caught the fever, with shows like "Flip this House." But that always seemed like big business, not what I was doing at all. In fact it seemed unrelated. I felt insulated from the big money and big investment aspect from real estate. I sold homes and dreams to families. They sold ideas and income to investors.

Then things changed in a very big way. When did the mortgage industry start to hype and sell low-interest loans to anyone who could sign on a dotted line? When did stated income become the norm? When did the economy get fueled by people cashing in on their "equity" to buy vacations, cars, and toys? But not only when did these things happen, why did they happen?

How did we get here? My livelihood seems to be tangled up in something mishandled and mismanaged by people who thought flipping a house was the new dot com. All the news I read says this could go on for several more years.